Banks Tighten Credit Rules for Smaller Firms : Loans: A new survey backs up complaints by small-business owners who say borrowing money is getting tougher.

A majority of large banks surveyed in May reported that they had tightened their standards for loans to small and medium-sized businesses in the first four months of this year, the Federal Reserve said Friday.

More than half of 60 large banks surveyed nationally said they had made credit policies more stringent, with one in 10 reporting they had tightened considerably, the regulatory agency said.

Rep. John LaFalce (D-N.Y.), chairman of the House Small Business Committee, said the survey was the first hard evidence backing up complaints of a credit crunch from small-business owners.

He summoned regulators from the central bank, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to a June 6 hearing “to start exploring the extent of the problem and its ramifications.”

Regulators had told LaFalce’s panel April 25 that they were unable to confirm that a lending squeeze had spread beyond the real estate industry. However, business owners, particularly from New England, said long-established sources of credit were drying up.

“The survey indicates that the anecdotal information we were given at our hearing has a real basis in fact,” LaFalce said.

As recently as last week, after a meeting between the three top federal banking regulators and the nation’s largest bank trade association, Federal Reserve Board Chairman Alan Greenspan had said evidence of the credit crunch was “quite limited.”

But, seeking to prevent the squeeze from snowballing, Greenspan stressed in private remarks to officials of the American Bankers Assn. that bankers should continue to make sound loans.

In Friday’s survey, lending officers said the primary reason for tightening lending policy was “a less favorable economic outlook.” Second, was a deterioration in the performance of loans the bank had made previously. Pressure from regulators was also mentioned frequently.

In addition to tightening standards for which loan applicants qualify, more than half the banks reported making the terms of loans they did make to medium-sized businesses more stringent, including requiring more collateral.

About 30% said they had reduced the size of credit lines to middle-market firms. Also, on balance, banks reported a slightly wider spread between the interest rate they were charging businesses for loans and the banks own cost of funds.

The 60 banks surveyed hold slightly less than a third of commercial banking’s $2.9 trillion in assets.